New budget in India: last March 16, the Indian Finance Minister, Pranab Mukherjee, presented the Budget (the Indian Government's programmatic tool equivalent to our budget) for the next financial year 2012/13.
In addition to the presentation of the measures that will be implemented in the new fiscal year, the Minister took stock of the trend of the Indian economy. The figures provided for 2011-2012 presented some differences compared to what was announced in the previous year: the growth stood at +6.9%, a lower figure if compared to the GDP of 2010-2011 (in which an increase was experienced of 8.4%) and the forecasts of the previous financial report, which indicated a +9%. Despite the global crisis, which has had repercussions on the Indian economy, even if only slightly, the Subcontinent is always among the top five economies in the world in terms of growth and forecasts indicate a +7.6% for the next fiscal year 2012 -2013, and a +8.6% for the following year.
In order to continue on the growth path undertaken, the 2012-2013 Budget has essentially identified five points which will have the objective of consolidating economic growth:
As far as sectors are concerned, Mukherjee intends to push on infrastructural development, a crucial sector for India's growth: in this regard, approximately €770 billion will be allocated overall, both by the public sector and by private investors. In order to guarantee more efficient transport, capable of allowing a more rapid circulation of goods, the Government has decided to expand the road line for a length of 8,800 km, or 14% more than the previous year's budget, with an investment of around €4 billion.
Even the agricultural sector, which continues to be considered a priority by the Government, will be the subject of heavy subsidies: an increase in credit for farmers up to €88 billion has in fact been proposed, in order to allow them an easier access to modern agricultural equipment. Furthermore, the new budget will kick off the implementation of the National Mission on Food Processing, a program that should encourage stronger growth in the food processing sector.
Mukherjee also stated that the Government intends to seriously consider two important proposals: the first concerns the possibility of allowing foreign airlines to participate up to 49% in the capital of an air transport company; the second concerns the desire to reach an agreement for the concession of FDI in multi-brand retail up to 51%, and this would be a truly fundamental measure for the country, given the recent obstacles that have not allowed total liberalization of the sector. The Minister also proposed setting up a €770 million fund to give micro, small and medium-sized enterprises access to credit.
Further measures concern some social reforms (launch of the National Urban Health Mission program and intervention on housing for the weakest sections of the population), the textile sector and the financial sector: for the latter the Rajiv Gandhi Equity Savings Scheme, tax deduction program for investors in the retail sector.
From a fiscal point of view, the Minister has promised initiatives aimed at combating the problem of corruption and has increased the excise duty (equivalent to our VAT) and the service tax (tax on services). The absence of a proposal for the reduction of the corporate tax rate does not satisfy companies, but the Government has tried to remedy this by proposing a series of measures to promote investment through tax cuts in various sectors, including agriculture, infrastructure, mining, rail and road, civil aviation, welfare and the environment.
Furthermore, in order to reduce tax disputes and guarantee tax certainty for foreign investors, the Government has decided to introduce the Advance Pricing Agreement this year. An APA, in the context of transfer pricing legislation, is an agreement between the taxpayer and the Inland Revenue, which addresses transfer pricing issues within a group of business-to-business transactions over a certain period, defining appropriate methodologies, terms and conditions.
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